Apple bets on Burberry chief to burnish retail shine

San Francisco , October 16, 2013

By Poornima Gupta and Guy Faulconbridge

Burberry CEO Angela Ahrendts rebuilt the British luxury brand after excessive exposure of its trademark checkered pattern alienated wealthy clientele. Her approach was to embrace digital innovation, build a strong online business, and tap Chinese and Latin American markets.

Now Apple is hoping she can do the same at the world's most valuable technology company.

In hiring Ahrendts to direct strategy, expansion and operation of Apple's retail and online stores, chief executive Tim Cook has set her the task of bolstering iPad and iPhone sales, and returning some lustre to a brand that has not launched a major new device in almost four years.

One of her main challenges will be to boost Apple's sales in China, its second-largest market. Here, analysts say, Ahrendts will be able to draw on her Burberry experience of introducing less expensive goods without damaging the value of the brand.

"The point of Apple retail is to sell Apple, not to sell Apple products," said Benedict Evans, who covers mobile and digital media at Enders Analysis, a research consultancy.

"What they've got is somebody who can take 400 stores with really great premium positioning and turn that into 800 stores and do that in China, and do that in India and do that in Europe and in Russia and in South America and everywhere else which at the moment they don't really have."

Ahrendts is the first woman to join Apple's executive team in nearly a decade and will take on an expanded role, overseeing its vast network of stores that employs about 42,400 people and online teams. Apple has not disclosed how much she will be paid.

The head of the 157-year-old Burberry Group was Britain's highest-paid CEO in the 2011-2012 financial year, taking home 15.6 million pounds ($25 million) thanks in part to a large number of shares awards. She took home 6.8 million pounds in the 2012/13 fiscal year.

Apple's former retail chief Ron Johnson, who had a brief and disastrous stint as CEO of JC Penney after leaving Apple in 2011, made $29.8 million in 2010. He is credited with building Apple's retail network from scratch in his decade-long stint.

At Burberry, Ahrendts began a website dedicated to the firm's traditional trench coats and introduced webcast catwalks, using the new iPhone 5S to shoot the spring/summer 2014 show. Ahrendts also collaborated with Google for a brand campaign named Burberry Kisses.

But jumping to Apple - whose $157 billion net sales are nearly 50 times those of Burberry - is a challenge of a different proportion for Ahrendts. The pressure is made all the more intense by Cook's previous stumble hiring a retail head from the British market.

John Browett, CEO of British consumer electronics retailer Dixons, was Cook's first major hire after he took over from Steve Jobs as CEO in 2011. But Browett left after just six months, and later said he had not fitted in with the business culture at Cupertino, California-based Apple.

Silicon Valley-based Gartner analyst Carolina Milanesi said not being steeped in the culture "and looking at the space and the brand from an outsider's perspective might actually be a plus.

"We are in a little bit of a bubble here in as far as what we think the consumers want and what they think of the brand."

CULTURE

Apple is an engineering and design-heavy company where executives such as design head Jony Ive exert enormous influence over strategy and products. Successful executives from other companies have found it tough in the past to fit in a secretive culture that encourages competition between internal groups.

Unlike at Burberry, Ahrendts will have to work with a smaller and more rigid gadget portfolio, where every incremental change is agonized over. It is unclear if she will have any say over the product landscape.

Ahrendts, who rebuilt the aging Burberry brand, will also have to counter threats from rivals like Samsung Electronics, a firm that has often used tactics from Apple's own branding playbook to compete.

Cook, in an email to employees on Tuesday announcing the appointment, described Ahrendts as "wicked smart." He said he knew he wanted to hire the 53-year-old executive from Indiana after first meeting with her in January.

"We've gotten to know each other over the past several months and I've left each conversation even more impressed," he wrote in the email seen by Reuters. "She led Burberry through a period of phenomenal growth with a focus on brand, culture, core values and the power of positive energy."

Apple's profit fell 22 percent in the June quarter as gross margins slid below 37 percent from 42 percent a year earlier and its shares, down more than 30 percent since September 2012, are being pummelled by fears of slowing growth, and competition from Samsung Electronics.

Apple's retail growth in China has been slow and the demand for its products has spawned a bustling gray market. In 2010, Apple's then-retail chief Ron Johnson forecast the company would have 25 stores in China by 2012. It now has 8 stores, despite Cook's assertion that China is crucial to growth. By comparison, Apple has 37 stores in Britain.

The company introduced a cheaper plastic iPhone last month to help make up ground in emerging markets to rivals like Samsung Electronics and Huawei Technologies . Analysts said the phone - still more expensive than many of its rivals' models - was not cheap enough.

"The trick is to allow people to buy into the product and make it as mass market as possible, because you want the volume and the sales, but you don't want that to come at the expense of the cachet of the brand," said Neil Saunders, managing director of retail consultancy Conlumino. - Reuters